Tranferring Company Shares to a Trust

Over the years we have saved up a decent amount in Retained Earnings in the business. The business is owned by my wife, me and another partner. We want to take these funds out so they could be utilized better and also to protect them in case of law suite etc.

The current share structure is:
Other Partner: 50%
Wife: 25%
Myself: 25%

The wife and I want to transfer our shares into a Trust and then use a bucket company to hold the funds till we are ready to use them.

I have read through a lot on this forum but just wanted to confirm if we are heading in the right direction.

A few questions:

1. Is there any better way of utilizing retained earnings, apart from a Div 7a loan or using a trust/bucket company structure?
2. Does transferring of shares from personal to Trust trigger a CGT event? Or "Small business restructure rollover" can be applied? The overall turnover inc GST for this financial year is under 10M.
3. If it is CGT even then how is the CGT calculated?

Any help is highly appreciated.

@Terry_w
@Paul@PAS
@Ross Forrester

 

1. Yes there might be.
2. Yes CGT event. small business concessions may be able to apply in some cases.
3. Value at transfer less cost base.

 

@Terry_w thanks for the quick response. Would you be able to expand on #1? Would love to know what are other ways of utilising the retained earnings.

 

2 that come to mind

You could
a) insert a company in between current shareholders and the company they own
b) lend to another company on a non-division 7A loan.

 

need to consider the dividend stripping provisions

 

Would you be able to expand on this with an example?

 

Tax Tip 238: What is Dividend Stripping? https://www.propertychat.com.au/community/threads/tax-tip-238-what-is-dividend-stripping.41047/

 

Company has accumulated profits and franking credits. You change shareholders. Then the new shareholder obtains a dividend or its a deemed dividend through a defective loan.

Losses are also a issue but not typically when you mention profits. Changing shareholders doesnt always mean losses remain available to use. These may be limited to a SAME business test.

Part IVA could also be a concern eg Trusts and adult kids in light of the recent taxpayer alert.

CGT triggers can be a issue. eg 15 years can be exempt but if its just 14 could it be worth waiting

If the entity also owns land it may be dutiable under land rich provisions.

Many issues to explore with personal tax advice. Tax consolidation can also be a strategy with +ve and -ve issues.

 

This depends of the level of turnover and also your personal wealth and age.

The small business reconstruction concessions will potentially allow the shares to be owned by a family trust with no CGT on the change. This then gives you benefits of trust ownership and flexibility.

The small business cgt concessions might allow a full sale that is then tax free. This could allow additional super contributions or allow a refinance of personal debt.

The is scope within the valuation by a qualified valuer to generate good outcomes and these can be impacted by the terms of your shareholder agreement.

I have often found the small business cgt concessions, when strategically used, are better than the restructure concessions (but often does not mean always).

 

ros i had a client seek advice from a large law firm on that and they believe dividend stripping provisions will apply.

i interposed a company for achieving asset protection and also sought a ruling on dividend stripping and had a very interesting discussion with the ato expert.

his view if interposing a head co their is less potential for a strip. with a trust its generally the reason why.

but ive seen a few firms recommending it.